*Kalabule in Ghana refers to one of the following 1.Organized & premeditated con-artistry. 2. Blatant trickery committed for personal economic gain. 3. The illegal buying and selling of controlled goods. (Urban Dictionary)

Five weeks after the declaration of the Senchi Consensus, a twenty-two point set of immediate, medium and long term actions to resuscitate the moribund Ghanaian economy, there is substantial amount of lethargy on even the commonly agreed irritable foreign exchange rules which has damaged consumer and investor confidence in the economy.

Some senior aides in government have suggested that the government’s inability to do the obvious should be blamed on the death of the irreplaceable and ubiquitous P.V. Obeng.

That a government’s positive sense of direction in stormy economic waters, largely created by its own inactions should be reliant on the demise of a single visionary begs the sophistication of government communication systems if not its understanding of the gravity of wasting more time whilst every living creature in the economy bleeds.

The ill-advised and ill-fated decision by the Central Bank of Ghana to adopt certain forex policies to arrest the depreciation of Ghana’s currency, the cedi, has negatively affected the strength of the cedi. Almost every sector of the economy has caught the Central Bank’s cold and is reeling under the influence, a very bad cold.

One such cancerous gaping wound with unstoppable haemorrhage is in the downstream petroleum industry. A looming crisis within the Bulk oil Distribution Companies (BDCs) urgently requires the attention of handlers of the economy in order to avert graver consequential implications across the country. Bulk oil Distribution Companies import finished petroleum products for onward sale to Oil Marketing Companies (OMCs) and subsequently to the public.

The Problem The BDCs operate in a sector which accounts for over 10% of Ghana’s GDP and 20% of national import foreign exchange has not been spared. However, the peculiar nature of the BDC’s problems defies any sound public policy.

Evidence suggests that between July 2011 and December 2013, the disparity between the National Petroleum Authority (NPA)’s rates on ex-refinery price and the transaction rates used by the Bank of Ghana resulted in a shortfall of US$415.21m.

Most Letters of Credit (LCs) used to cover importation of oil from the commercial banks to the BDCs for the first quarters of 2014 are now about maturing. If we factor in the cedi’s depreciation by almost 20% since the retrogressive forex rules, it means the current NPA pricing mechanism, has created a financial hole to the tune of USD 500 million deeper. It also simply means the forex cover from the commercial banks which used to be US$900m for the BDCs has effectively been reduced to US$400m.

Government Failure What makes the situation worse for the BDCs is the failure of government to accept responsibility and explicitly own the forex losses it created, when and how they will be paid, and crucially when a competent review of the forex rules will be undertaken to prevent future losses.

With this uncertainty not put to rest by any assurances, or concrete actions related to assurances to assuage the burden of debt, the banks have no options than to re-align their policies to lending and import financing by adjusting them and leveraging on less riskier profiles, thus creating a vacuum for the funding of losses already made. Others have totally withdrawn their funding for some BDCs.

Commercial banks normally hold the uncovered forex outstanding bills against the credit limits assigned to a given BDC, hence any delays in providing forex cover for matured Letters of Credit limits a BDC’s ability to draw down on its trading facility for imports.

Therefore, trading facilities that should ordinarily have been used to facilitate importation are now being used to offset previous costs that were not related to the trade itself but were related to the loss in exchange rates. Effectively, the BDCs are then not going to create enough sales and revenue to even recoup or recover initial costs while their facilities dwindle, creating lower effective demand for downstream crude supplies while lowering the supply to the oil marketing companies and hence the general public.

The timing couldn’t be worse as demand for diesel and petrol are rising because of increased need for machines such as generators and also a higher level of importation and use of automobiles and factory machinery. The sheer quantum of capital required and the huge hole of over US$500 million means that the entire banking sector and the economy are exposed greatly since banks cannot keep investing into a sector requiring so much capital but without any cover for shocks and losses.

Uneconomic Subsidies Subsidies by the government now amount to 121% of the premium by BDCs, meaning that the risk profile has been further raised since the government has had challenges offsetting previous bills on subsidies incurred in 2013. Adding that to that of 2014 so far, which began seven weeks ago has led to an increase of GHC 100m to the subsidy bill.

Add this to the loss of liquidity and cost of financing and then the banks cannot be faulted for injecting some sanity into their funding of runaway cost and risk profiles in this sector. The government’s intervention in this sector is only serving to compound an already big problem. Wading in without any clarity as to methodologies, timelines and budgeting information on how the liquidity issue will be solved will only serve to add more variables to an already complex situation, creating a higher co-efficient of uncertainty, feeding the high risk quotient that BDCs are already having to face with regards to the banking sector and financing.

Implications Since it is becoming apparent that none of the stakeholders involved have expressed any willingness to absorb the cost of the staggering exchange rate losses, the onus is lying on the BDCs to find other means of funding their imports since banks are not ready to absorb these losses incurred. A frightening scenario presents itself in that without any explicit commitment by government, stating the timelines and a schedule for reconciliation of these losses, BDCs will eventually capitulate to the forces of the market, rendering them incapable of importing. A shortage of fuel is imminent, so is a black market for fuel preparing to take over. The Kalabule petro economy is thus born.

The socio-economic engine of the nation is going to grind to a halt if that takes place, and the current deficiency in energy production will surely be eclipsed by the imminent shortage of fuel, taking us to a situation quite unlike those of 1983. The resultant loss of industrial production and consequently jobs will mean lower growth in these sectors.

The banks, in their course of action, have sent a big signal that they are beginning to consider capital financing as a high-risk activity, and since this has been one of the most stable of investments, the indication is that very few businesses, especially in the area of import, are getting any kind of financing as far as forex activities are concerned.

The example of the precarious state of liquidity in the BDC sector due to forex losses might be but a mirror of the implications of fiscal imprudence on most sectors of the economy. It will be important that a clear audit of the situation is undertaken without prejudices in order to determine what the best courses of action could be to arrest the trend. Without that, there will be no progress and the stalemates that could result will end up throwing a wrench into the engine of growth of the economy. The Government should not drag the BDCs and the Banking sector along in its bid to commit financial suicide.